Business Risks

The following are the main risk factors regarding our business that may have a significant impact on investment decisions. In addition, other factors that do not necessarily fall under such risk factors but are considered important for investment decisions or for understanding our business activities are described from the proactive disclosure viewpoint. We strive to prevent the realization of these risk factors and treat with any issues that may arise from their occurrence. However, all investment decisions need to be carefully made, considering multiple factors, including the risk factors described in this section and others throughout this document. Please note that the following description does not cover all the risks associated with an investment in our shares. Forward-looking statements in the following text are based on our consideration as of November 30, 2023.


Trends in the Real Estate Market Environment

We believe steady demand for pre-owned family-typed condominiums, our main investment target of renovation condominium business as our core business, remain solid due to affordability compared to new condominiums, and to the growing awareness of renovation among home buyers. However, the real estate market is subject to fluctuations in supply and demand, affected by the economy, interest rate, land price, and the housing tax system.
We have established a system to respond to changes in the real estate market environment by constantly monitoring trends at the Board of Director Meetings.


Tax Reform and Other Policies Related to Real Estate

Changes to the consumption tax system may temporarily increase or decrease demand on the house market or increase the amount of taxes we are required to pay. In addition, as the government’s economic policy aligned with shifts in economic trends, adjustments to the taxation system related to real estate may occur, including changes to mortgage tax benefits and exemptions for gift taxes on house purchases. Depending on these policies, our business performance may be affected by an increase in purchase and sales cost or decrease in the desire of home buyers to purchase houses.



In recent years, competition in renovated condominium market has intensified due to the entry of an increasing number of new companies with the background of robust demand for renovated condominiums. In this situation, pre-owned family-typed condominiums with tenants, our main investment target, is differentiated by the difficulty of purchasing and holding such properties on a massive scale, there are no competitors on our scale. We also differentiate ourselves from competitors by building a property information network based on our long track records with real estate agent companies, quickness in price assessments during purchasing process, financing capabilities that enable us to hold properties in a long term, and an internal operation system that allows us to carry out a large number of price assessments and transactions quickly and precisely.


Dependence on Debt

We utilize shareholder’s equity and liabilities to purchase properties, and the balance of liabilities varies according to the purchase volume. We aim to corporate management focusing on capital efficiency and strive to secure financing at a sustainable scale, considering appropriate financial leverage. However, changes in the financial environment may cause an increase in interest expenses. To minimize such effects, we strive to increase the variety of financial institutions from which we borrow and expand financing methods, and utilize interest rate swaps to fix variable interest rates in anticipation of potential future increases in interest rates.
We have entered into loan agreements with various financial institutions, some of which include financial covenants. If we violate these covenants, it may result in losing benefit of time, potentially impacting our business performance.


Mark-to-Market (MTM) Loss in Inventories

When the profitability of certain properties we hold decreases, we value them on the balance sheet at their net selling price. The variance between the net selling price and the book value is then recognized as a mark-to-market (MTM) loss. We determine the estimated sales price, which is served as the foundation for the net selling price, by considering various factors such as the property's location, size, comparable sales in the vicinity, transaction records, and evaluations conducted by external appraisers. If the net selling price declines in the future due to shifts in economic conditions or real estate market trends, the amount of MTM loss may increase, which may affect our business performance.


Liability for Non-Conformity with Contract

To avoid unexpected damage to rights, building structure, or environment when purchasing pre-owned condominiums, we conduct careful research and assessments when we select and decide to purchase them. If any discrepancy that does not align with the contract terms arises after the purchase and is the seller's responsibility, we typically seek to hold the seller accountable for breaching the contract, though this might not always be achievable. If such a discrepancy significantly impairs the resale value of the property, our business performance may be affected.
When we sell renovated condominiums, we have established an internal system to carefully manage the renovation plan and construction process to avoid any unforeseen damage to customers. Additionally, we provide the buyers with comprehensive information by issuing a property status report at the contract. However, if a defect is discovered after the sale that does not conform to the contract, we may be required to make additional claims for completion, decrease the price, compensation for damages, or to terminate the contract based on liability for non-conformity with the contract. This may affect our business performance through additional expenses for repairs, compensation, or price decrease.


Construction of Renovation

We select external business partners that meet certain standards for renovation work of our pre-owned condominiums, considering their planning and construction capabilities, construction period, cost, and quality. However, if we struggle to secure a sufficient number of suitable external business partners because of the growing number of properties managed and the expansion of our business areas, or if we encounter challenges in effectively managing these partners and unexpected issues arise during renovation work, or if materials costs rise or distribution delays due to economic conditions domestically or internationally, leading to longer construction periods, it may affect our business performance.
To minimize such effects, we focus on the discovery of new external business partners and strengthening relationships with current partners.


Losses due to Unforeseen Accidents and Natural Disasters

The real estate we hold is located mainly in the Tokyo metropolitan area, but also in the Kansai and other areas (Hokkaido, Miyagi, Aichi, and Fukuoka Prefecture, etc.). If a fire, riot, terrorist attack, earthquake, volcanic eruption, tsunami, or other unforeseen accident or natural disaster in the areas where our real estate is located, the real estate may be destroyed, deteriorated, or damaged, resulting in sudden repair costs or a decline in future resale prices. In addition, unforeseen accidents or natural disasters could diminish investor appetite in the real estate investment market and affect our business development.
To minimize such effects, we are further diversifying the areas in which we purchase properties and, in principle, insure real estate that we hold against fire and facility liability.


Legal Regulations

We conduct our business in compliance with the laws and regulations in force at this time, however, if new related laws are enacted or existing laws are revised or abolished in the future, some of our business activities may be restricted or additional costs may be required to comply with such laws, which may affect our business activities. In addition, our business performance could be affected by suspension of business operations or revocation of licenses by regulatory authorities due to violation of laws and regulations. The main laws related to our business are as follows.

Real Estate Brokerage Act

We belong to the real estate industry and are licensed under the “Real Estate Brokerage Act”. In addition to Real Estate Brokerage Act, we are regulated by Act on Specified Joint Real Estate Ventures, Act against Unjustifiable Premiums and Misleading Representations, Fair Competition Code Concerning a Description of Real Property, Building Standards Act, and other laws. The revision or abolition of these laws and regulations, or the emergence of new legal restrictions in the future, could affect our business performance. In addition, the continuation of our main business activities is premised on the licenses and permits listed in the table below. In principle, these licenses and permits have validity periods, and we strive to ensure thorough legal compliance and prevent misconduct to smoothly renew them. At present, there is no fact that any of these permits or licenses are subject to revocation or refusal of renewal. However, if they are revoked or not renewed for any reason in the future, this could hinder our main business activities and affect our business performance.

Company Name Name of Licenses and Permits Details of Licenses and Permits Term of validity
Star Mica Co., Ltd. Real Estate Brokerage License MLIT (3) No. 8237 12/1/2021-11/30/2026
Star Mica Residence, Co., Ltd. Real Estate Brokerage License MLIT (1) No. 9665 1/7/2020-1/6/2025
Star Mica Asset Partners, Co., Ltd. Real Estate Brokerage License Governor of Tokyo (2) No. 102192 6/23/2023-6/22/2028
Star Mica Property, Co., Ltd. Real Estate Brokerage License Governor of Tokyo (1) No. 105742 1/16/2021-1/15/2026

Financial Instruments and Exchange Act

We are registered as a “Type-II Financial Instruments Business” and “Investment Advisory and Agency Business” under the Financial Instruments and Exchange Act. Financial instruments business operators are regulated by the Financial Instruments and Exchange Act and various other related laws and regulations.

Company Name Licenses and Permits
Star Mica Co., Ltd. Director-General of the Kanto Local Finance Bureau (Kin-sho) No. 2191
“Type II Financial Instruments Business”
Star Mica Asset Management Co., Ltd. Director-General of the Kanto Local Finance Bureau (Kin-sho) No. 808
“Investment Advisory and Agency Business”